National Express travels well

THE INVESTMENT COLUMN
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The Independent Online
National Express dislikes being called a transport conglomerate, but it has made a decent fist of managing the three rather disparate parts of the formerly state-owned passenger transport group. It has adopted a policy of cutting costs and boosting demand through low prices in all three of its businesses, which currently encompass the original coach operations, airports and, since last April's pounds 244m acquisition of West Midlands Travel, buses too.

The success of that strategy showed up again in last year's results, which saw pre-tax profits more than doubling from pounds 15.2m to pounds 41.5m in the year to December. The latest figures were inflated by the first-time inclusion of WMT and Bournemouth airport, also picked up in April, while the previous year included windfall profits from the signalmen's strike on the railways, estimated at pounds 2m by National. Stripping out the strike effects and pounds 2.9m of rationalisation costs at WMT, underlying earnings per share climbed about 35 per cent last year.

The move into buses looks to have been excellently timed. WMT saw passenger volumes rise in its West Midlands heartland last year for the first time in 10 years. With a further pounds 4m rationalisation charge expected this year and new services being developed, further short-term margin improvement in the bus division should be assured.

Further out, significant growth can only come from taking out some of the bigger players in the industry. Perhaps wisely, National says it does not want to go down that route unless it can be done on a friendly basis.

The 1993 move into air transport, through the acquisition of East Midlands Airport, is also proving more than a one-shot wonder. Profits there leapt from pounds 6.42m to pounds 9.37m on soaring passenger and cargo volumes, so much so that in several months last year East Midlands overtook Heathrow as the nation's biggest pure cargo airport. Growth this year could be hit by an expected sharp deceleration in the growth of package tour holidays, but the underlying potential remains .

The strength of existing operations augurs well for National's move into new areas. The pounds 11m investment in the Channel Tunnel link group, London & Continental Railways looks like a punt, but it is thought to be in pole position to pick up the Midland Main Line franchise.

Profits of pounds 57m this year would put the shares, up 9p at 486p, on a forward multiple of 16. Fair value.

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